Is Kenya’s commercial real estate ready for disruption?

The built environment – with its fixed assets and capital intensive structural modifications – can be slow to respond to change. However, to ignore these same arguments can be at your peril. Without flexibility and a proactive response to change, the impact of disruption to investors and occupiers can be costly.

Local corporates must question their ability to respond to the disruptions that are happening in the sector.

Consider how the traditional office has transformed over the last decade or so. We’ve progressed from larger cellular offices to open plan areas, and today’s ‘modern office’ is pushing to give as much value to collaborative spaces as to activity-based workstations. Technology is a massive disruptor in office accommodation, enabling employees to work flexibly, and indeed virtually, within an organisation’s space. Firms that have adopted the modern office are achieving increased efficiency from their portfolios and in many instances their teams are more productive. The shift has often meant less square feet required or at least more flexibility to accommodate growth in head count, with the resultant savings in operational costs. Despite the benefits, some firms still struggle with the concept of ‘working virtually anywhere’. It’s time for managers with a ‘shop floor’ management style of command and control to reassess. Gone are the days of ascribing value to time spent at a fixed desk. If corporates want to attract and retain talent, it’s a fact that top talent thrives in the flexibility offered by modern workspaces.

The Nairobi Garage, IHUB and other such facilities are testimony to Kenya’s adoption of the modern way to work. JLL’s research a new era of co-working lends insight into the evolution of work and will motivate any real estate professional grappling with change.

Corporates in Kenya are either in owner-occupied buildings or leased buildings. Those who lease will typically sign a minimum five year contract in compliance with legislation. The opportune time for CRE teams to have the workplace transformation conversation should be timed to key activities such as lease end-dates. A Harvard Business Review article noted that “the more difficult the barrier, or the more barriers a disrupter faces, the more likely it is that customers will remain with incumbents”. Remember then that it is unlikely that discussions on reduction of leased space would have a positive outcome if anticipated savings are utilised only in paying off ‘lease exit costs’.

The Kenyan banking industry is a good illustration of positive response to disrupters. In the early 90’s, a typical branch averaged 10,000 sq ft in a bank-owned and purpose-built building. Most were built in good locations and accommodated a significant number of tellers, large back offices for support services and occasionally a residential facility for the branch manager. Then came ATMs. Banks that were early adopters quickly downsized their branches, initially shrinking the banking hall and retaining larger back offices. Forward looking bank leaders then sold bank-owned buildings in favour of leasing to support the agility necessary when the need to move to alternative locations was demanded by customers. (This is not without challenge as owning/ leasing of bank buildings is not purely based on flexibility, but an argument for locking in capital in weighted assets also plays a part.) Today, with digital banking the preferred channel, real estate managers in the banking industry must adapt to the technological disrupters, partner with business and design spaces that are fit for purpose.

Looking briefly at retail and with Nairobi at saturation point, investors should be preparing to offer Kenyans an omni-channel shopping strategy. Customers are looking for an integrated shopping experience. Investors with existing ‘brick & mortar’ mall stores may consider balancing their mall investments with investments in warehousing and logistics centres to compliment retailers moving to online platforms.

In the manufacturing sector, poor infrastructure is a key reason for the current underperformance. So while there is focus on improving roads and access to affordable power, someone needs to consider the extreme lack of warehousing/ logistics centres vital to support growth in the sector. Unfortunately, investments in this real estate category are stuck in the 1980’s with basic godowns proving inadequate. The question is will new industrial nodes at Tatu City, Northlands and other mooted pipeline projects provide world competitive industrial infrastructure?

It’s not just the investors that need to wake up to disruption. To operate competitively, real estate professionals must also equip themselves to stay ahead. We all need to change the way we do things.

About the Author

Lucy heads Corporate Solutions in East Africa, and is responsible for the JLL East African Hub. She is focussed on occupier solutions, tenant representation and research for Kenya, Tanzania, Rwanda, Uganda and Ethiopia. She is a Kenyan national and has over 20 years’ experience in the Kenyan market. Lucy recently joined JLL to develop and expand the East African hub. Lucy holds a degree in Land Economics from the University of Nairobi and is a Registered Valuer accredited to the Institution of Surveyors of Kenya.

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